What if the most important turning point in global tech markets was already underway — and very few investors were paying attention?

From the AI boom to the rebound in global memory pricing, a quiet but powerful recovery is taking hold across the semiconductor industry.

The semiconductor industry: cyclical, global, and critical

The semiconductor industry is huge, global, deeply cyclical, essential to the growing prosperity and technological development of the human race, and for a lay observer like me, fascinating.

Although its significant capital intensity dictates that the businesses that dominate it are large, it is highly fragmented, with different businesses specialising in and dominating different aspects of chip design, manufacturing and packaging. For example, China is dominant in the supply of the raw materials used in semiconductor manufacturing, including silicon, gallium, germanium and scandium, the US leads in chip tech development and design, Taiwan and South Korea dominate chip manufacturing, and companies in SE Asia specialise in assembly, test and packaging.

Consequently, no one country or company controls the semiconductor value chain, and as a result, this industry structure creates a complex web of critical interdependencies and potential vulnerabilities.

The industry’s inherent cyclicality, partly due to its significant capital intensity, also means that identifying when and for how long companies in this industry can become attractive investment opportunities is challenging.

Nevertheless, having looked long and hard at a number of the global industry’s leading businesses, I have decided to include several in two of W4.0’s strategies — Unstoppable Trends and my Top 40. These holdings aren’t short-term trades — they’re part of a structural view.

Track the Unstoppable Trends strategy now

Signs of a turning point

In the immediate aftermath of Trump’s election and the tariff announcement on Liberation Day, chip stocks globally went through a difficult period. Of course, underlying concerns about trade friction between the US and China are ongoing. However, against this backdrop of nervousness, underlying industry fundamentals appear to be improving, driven by the unwinding of excess inventory and consequent pricing pressure and by genuine growth in demand as AI investment globally is increasing very rapidly, particularly in the US.

More evidence of this improving backdrop was evident this week in TSMC’s May Revenue Report. (TSMC is the world’s largest semiconductor foundry – it manufactures chips for companies based on their designs, including Nvidia, Apple, AMD and Qualcomm. It is based in Taiwan, and with a market capitalisation of $1.1trn is the world’s 9th biggest company.)

In it, TSMC reported that May revenues were up 8.3% on April 2025 and a remarkable 40% ahead of May 2024, underlining the strong growth in the industry driven in large part by the emerging AI industrial revolution.

This latest evidence backs up what has also been reported by some other leading chip industry players, including Nvidia and STMicro, a leading European chip business, which features in two W4.0 strategies, Unstoppable Trends and Top 40.

I will continue to monitor developments in this exciting and essential industry closely, but for the time being, it is becoming increasingly clear to me that a cyclical low point has passed and that a global recovery is underway.

Spotlight on SK Hynix: A core holding in Unstoppable Trends

SK Hynix is a globally significant semiconductor business which was founded in Korea in 1983, and is focused on developing, manufacturing and selling computer memory and data storage products, including DRAM, NAND flash memory and HBM chips, in which it has a 50% global market share. Its data storage and memory chips are used in a wide range of applications across AI, data centres, networking, mobile communications, PCs, consumer electronic devices, and the automotive sector.

Thin, fast, and AI-ready: SK hynix’s new UFS 4.1 storage solution, built on world-first 321-layer NAND, promises ultra-slim form factor and record-breaking read speeds – built for the demands of on-device AI.

The business has had a difficult period over the last two years, reflecting the deep cyclical downturn in the global memory market, which resulted in it making losses in calendar 2023. Since then, pricing and end market volumes have been rapidly recovering. Revenues more than doubled in fiscal 2024, and the business also returned to significant profitability.

The business is listed in Korea and has a market value of US$125Bn (as at 18 June 2025). The balance sheet has modest leverage (0.57x 2025 EBITDA) and is forecast by consensus to continue to grow profitability strongly over the next two years.

Reflecting the historic deep cyclicality of the business, its current rating is extremely low at 5.3x and 4.4x earnings for calendar 2025 and 2026, respectively. This, I believe, reflects the market’s concern about historic cyclicality and scepticism about the duration of the upturn in the memory industry, which I do not share — not least because of the very strong market position the business enjoys in the HBM market, which has become a key driver of the business and which is likely to see sustained high growth as the capex cycle driven by global AI investment gains traction.

Why It’s in the W4.0 strategy

SK Hynix’s valuation reflects deep scepticism about the duration of the cyclical upswing in the global memory market. Whilst I acknowledge that SK Hynix is likely to remain a cyclical business, its current rating appears to be discounting the next downturn way before it is likely to arrive. In the meantime, the business is forecast to continue to recover, growing revenues and net income very strongly over at least the next two years.